Quote:
Originally Posted by 4444
but a rise in rates will hurt the economy and will cause job losses.
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It is going to hurt, that's for sure. But it also allows Canada to get back faster.
Look at what happen in US in 2008. US Gov't basically decided to let the house market collapse while maintaining only the fundamentals (financial system) relatively intact. Now they are thriving (relatively to other economies)
CAD has been on par or near par with USD for far too long. People, prices and wages were adjusted in such way. Now, if BoC drops the rate or maintain it when the Fed goes up, the only way it would make sense for Canadian is if their wages are increased by the same margin. Else, the housing market will collapse anyway because CAD will drop far too much, foreign investors will leave while new investors won't come until market stabilizes.
Plus when the prices of goods go up. I.E: USD-CAD moves from 1.20-->1.40 in a short span and stays there. All import goods (which includes food and many other grocery items) prices suddenly go up by 16%, people would have to abandone paying for their expensive houses and get food onto the table first if their wage didn't increase by the same amount. By then the housing market will have a bloodbath, so is the investment sector as it makes very little sense to invest in Canada unless you are exporting. But that is only a fraction of our economy.
I'm not saying CAD shouldn't drop, but it should do so in a controlable manner.